Investors rank climate risk alongside financial disclosures, but there’s a big problem
Investors want to understand how the companies they invest in are impacted by climate risks and what they are doing to address it, but that may not be an easy fix.
A new study from the McCombs School of Business at the University of Texas surveyed 439 institutional investors and found that 79% believe that climate risk disclosures are at least as important as financial disclosures – a third think it more so.
But more than two thirds of respondents said that current disclosures are not precise enough and almost three quarters believe that mandatory and standardized disclosures are necessary.
“Our work suggests that the current largely voluntary reporting regime does not enable fully informed climate-related investment decisions,” said Laura Starks, a finance professor at the McCombs School of Business. “Our study shows that mandatory disclosure does have an effect on investors’ decisions.”
The SEC is considering a new rule for companies but the initial deadline for this has passed and it may be the fall before anything is announced.
The McCombs study found that the cost of compiling climate risk disclosures can be a problem for companies, but there is also another challenge.
A new global survey of board directors published this week by Heidrick & Struggles in association with Boston Consulting Group found that two-thirds of directors (68%) feel that sustainability has little impact on financial performance today, and only 10% believe sustainability will negatively affect medium- to long-term financial results.
It also identified that just 29% of directors feel knowledgeable enough to challenge or monitor execution on sustainability, and 89% rely only on management updates to stay informed on the topic of ESG.
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